“Investors are bubbling to the top,” Ms Bloom said. “They can see that there is some good buying.”

Housing has fallen by more than 13 per cent and apartments about 11 per cent during the past 12 months, according to analysis by Morgan Stanley of national prices. Many analysts predict the peak to trough decline could be between 15 and 20 per cent.

Improved investor outlook

Martin North, principal of Digital Finance Analytics, said his surveys of households are also detecting an improving attitude to investing.

“There is something going on that is not translating into official figures,” Mr North said.

Beach views above the shops for $28,000 per square metre. 

Lenders are targeting emerging investor demand with low-priced, longer-term fixed rates of between one to five years.

For example, up to eight lenders have recently cut their one-to-five-year fixed rates by an average of 16 basis points.

“The decline in fixed mortgage rates reflects falling bond yields because this drives the cost of funding for fixed-rate loans,” said Shane Oliver, head of investment strategy and chief economist for AMP Capital.

“Over the last 12 months the 10-year bond yield has fallen from around 2.85 per cent to around 2.1 per cent now and shorter maturity bond yields have fallen as well.” By contrast bank bill rates – which are more relevant for variable mortgage rates – have not come down as much, reflecting a still relatively high spread between the expected cash rates and bank bill rates, he said.

An investor snapped up this beach pad before the auction. 

That means an investor can get a five-year fixed rate of from between 3.99 per cent and 5.61 per cent, compared to a standard variable rate of between 3.54 per cent and 5.59 per cent, according to analysis by Canstar, which monitors fees and prices.

“Falling bond yields enable some creative mortgage funding,” said Steve Mickenbecker, Canstar group executive.

The cheapest five-year rates would be likely to remain competitive even if the Reserve Bank of Australia was to trim cash rates, leading to a fall in standard variable rates.

It is likely many lenders would hold back some of the cash rate cuts to repair balance sheets and pass on only a percentage of the cuts with lower rates, Mr Mickenbecker said.

APRA’s decision to lift the cap off investor lender and the end of the Hayne royal commission into banking could also reduce pressure on major lenders and encourage more lending.

“Most of the economic indicators are relatively strong and would usually point to a steady residential market,” said Shaun Thomas, residential director for Herron Todd White, one of the nation’s largest independent property valuation and advisory groups.

“This downturn appears to have been strongly led by negative market sentiment and tightening credit availability as a result of the banking royal commission, along with previous APRA regulation changes,” according to Mr Thomas.

He expects the NSW market to pick up in the second half after the market has time to digest the implications of a state and federal elections.

It also assumes there is no big external shock to the economy and that other economic indicators, such as unemployment, interest rates and other local and global economies remain stable.

Ben Kingsley, chairman of the Property Investors Council of Australia, said Labor’s failure to set a timeline for proposed changes to negative gearing was holding back demand.

Mr Kingsley said: “If the policy was absurd [when the property market was booming], it’s even more so now, with the national economy flat-lining and significant property price falls in our two biggest cities.”

He said existing – and future – investors need to have enough time to organise their finances to meet the deadline.

Vendor discounting for apartments and housing have risen to about 5 per cent, or a rise of about 25 per cent since the market peaks in 2017, according to analysis by investment bank Morgan Stanley.

Rental property yields (annual rental income divided by property value) are ticking up nationally to between 3.5 per cent for houses and 4.2 per cent for apartments, which is better than many fixed-income alternatives, according to its research.

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